Members of Congress and the Labor Department are discussing possible legislation or regulation that would crack down on potential conflicts of interest involving brokers who provide advice to 401(k) plans and then promote their own firms' IRA plans as a suitable investment for retiring plan participants' 401(k) rollovers.
The Labor Department last month issued proposed regulations under the Employee Retirement Income Security Act of 1974 that would prohibit brokers from giving advice to retirement plan participants if they, their employers or any affiliate of their employer would earn fees or compensation based on that advice.
But the agency is also now looking at how to protect retirement plan participants from receiving conflicted advice when they roll over their 401(k) assets into an IRA, said Assistant Labor Secretary Michael L. Davis.
“We are spending a greater amount of time on this issue,” he said last week at the American Society of Pension Professional and Actuaries' 401(k) Summit.
The Labor Department's main concern: Even if it addresses the problem of conflicts arising when advisers promote their own products to participants in a 401(k) plan, the conflict arises again when the retiring employee leaves the 401(k) plan and seeks to roll over his or her assets into an IRA, said Brian Graff, executive director and chief executive of ASPPA.
“I think we will see some DOL clarification on this issue,” he said.
Congress is discussing legislation that would address the issue of advisers' and service providers' hawking their own products, Mr. Graff said during a panel discussion with Mr. Davis.
“There are some folks on the Hill who think you — the plan service provider — shouldn't be able to capture rollover assets,” Mr. Graff said. “For a lot of you, this is going to be a very big issue.”
Mr. Graff declined to name which members of Congress are considering introducing a bill.
For advisers, being prohibited from doing business with a client seeking to roll over assets would be a substantial business hit. IRA rollover assets are expected to hit $266.7 billion this year and grow to $338.8 billion by 2014, according to Cerulli Associates Inc.
“We have been helping these clients for years, and now, when it's time for them to retire, we are supposed to say, "No, we can't help you. Go across the street,'' Larry Deatherage, a partner at The Founders Group, a hybrid advisory firm, said during a separate presentation at the ASPPA conference.
But a number of experts at the conference said that they are worried that regulators and legislators are so focused on removing the potential for conflicts of interest in providing advice to retirement plan participants that they are missing the benefit of having one person providing comprehensive advice.
“I would rather see some clarification on this issue rather than new regulation or legislation,” said Jason C. Roberts, a partner at Reish & Reicher, which represents securities firms and investment advisers.
“You want one financial adviser who can provide comprehensive advice,” he said. “Any further controls of that make no sense, because you are excluding two of most investors' primary assets: their ERISA plans and their IRAs.”
E-mail Jessica Toonkel Marquez at jmarquez@investmentnews.com.
